Friday, July 29, 2016

The Meaning Of "Growth"

Economists are obsessed with growth. Unfortunately, Jim Stanford writes, they define the term much too narrowly -- because they assume that good growth is inextricably linked to profit. Progressives should be fighting this idea. Growth means much more than profit. It really means "work:"

"Growth" has to be correctly defined and measured, and we must always be crystal clear that lifting living, social and environmental standards -- not "growth" for its own sake -- is our goal. In this context, I prefer to discuss "work" rather than "growth," since after all human productive activity ("work," broadly defined) is the only thing that adds value to the natural resources we harvest (hopefully in a sustainable fashion) from the environment. It is obvious that there is plenty of work to be done out there (caring for ourselves, our communities and the environment), and millions of underutilized people with the desire and ability to do it.

There is so much work to do. And that work is important for reasons other than profit:

In terms of its impact on living standards, the effects of growth depend totally on how new GDP is produced and what it is used for. If higher GDP is associated with higher profit margins, which in turn are accumulated in undistributed corporate cash hoards or paid out in fat dividends to well-off investors, then growth may accomplish nothing. And if higher GDP is generated through extensive resource exploitation, sucking more value out of a non-renewable resource base and ignoring the need for conservation and amelioration, then it will certainly be associated with continued environmental degradation.

On the other hand, there are many other ways in which an economy can "grow," and a country's real GDP increase. It could happen, for example, through a major expansion in human services delivery (e.g., child care, elder care, education and culture). Proper programs in these areas would create hundreds of thousands of new jobs, tens of billions of dollars in new incomes, and many billions in revenues for government -- not to mention delivering services that are valuable and life-enhancing in their own regard. GDP might also grow because of huge investments in public capital and physical infrastructure -- things like utilities, affordable housing, education and cultural facilities, and parks.

For nearly fifty years now, the world economy has been operating on a narrow definition of growth.The benefits of that narrowly defined growth have gone mainly to those at the top of the economic pyramid.  The powers that be have told us that growth, so defined, is a scientific law -- like Newton's Law of Gravity.

Put simply, that's hogwash. And, in the places most devoted to that narrow conception of growth -- like the U.S. and the UK -- the natives are getting restless.



Rural said...

"The benefits of that narrowly defined growth have gone mainly to those at the top of the economic pyramid."....and like the typical "pyramid scheme" is unsustainable and will eventually collapse affecting those at the bottom the most! As you say Owen we must define 'growth' (and wealth) in a different way and recognize those that contribute to society in different ways.

Owen Gray said...

Economies are supposed to work for people, Rural. We've managed to create an economy that works the other way around.

Toby said...

Owen, I have long blamed many of our problems on the wholesale use of the GDP as an economic measuring device. While I can understand business using the GDP there is no reason for the rest of us to do so. Of particular importance, our governments need to use measuring devices that are more inclusive. The Genuine Progress Indicator is one example of a different method of measuring growth.

Owen Gray said...

Thanks for the link, Toby. It appears we already have the tool we need to redefine growth. All we need to do is use it.

Scottie said...

not sure how "human services delivery" delivers thousands of $$ revenue to the government. This would be be just an expansion of the socialist leap manifesto nonsense.

Owen Gray said...

It's a case of spending money and getting some of it back in tax revenues, Scottie. Just as the child benefit is spent in the economy and serves as an economic stabilizer, the delivery of human services can perform the same function.

Anonymous said...

GDP is simply the amount of goods and services consumed in a year. It's one way of accounting for all of the wealth an economy generates in a year. It doesn't say how the wealth is created or distributed. Just how much of it there is.

The reason the economy (GDP) grows is because of human development. All human development (including all human activity) that can be measured in prices (like building a bridge or watching Netflix) is a subset of GDP. New human development a subset of GDP growth.

All forms of development are exponential. A bacterium in a Petri dish will grow exponentially until it hits a resource wall. Nature itself, once a humble self-replicating molecule, has developed into all forms of life on the planet, including us, and including our economy (all human activity that can be measured in prices.) It and our civilization are something that could develop indefinitely.

The problem with GDP growth is that it has TANKED thanks to 35 years of Friedmanian 'neoliberal' reforms entirely self-serving to the upper class. Apparently robber barons looting the global economy of trillions of dollars (manifesting itself in skyrocketing debt and inequality) does not grow the economy.

Terry Milewski's latest extols the virtues of NAFTA. What he doesn't mention are the millions of job losses and the drastic reduction in GDP growth. According to the Conference Board's Total Economic Database, in the 25 years before the 1988 FTA the economy grew 176% or 4.2% annually; in the 25 years after, 58% or 2.3% annually.

Today economists predict that long-term growth will be significantly less. (It won't. The global economy will collapse into fascist revolutions and world war unless we bring back Keynesian 'New Deal' economics.)

Growth (human development) is the solution to everything, not the problem. It all boils down to a simple equation:

G = D + E

GDP equals human development plus externality. Eliminate externalities (stealing or gambling with someone else's money or livelihood) and you have pure human development. Invest money in poor countries to equalize living standards to ours and this will create an enormous amount of GDP. Invest in public benefits, green energy infrastructure and education and the rate of human development (GDP growth) will be higher and the people will be wealthier and have more personal freedom.

Last: the end of the economy equation:

$1,000,000 = $50,000 * 1.04 ^ 76.4

OIOW, in about 80 years of Keynesian-level 4% growth, GDP per capita (average income per person) will be $1-million. In this economy, people no longer have to work to support themselves. Machines will do almost all of the work.

In short, the Keynesian 'New Deal' mixed-market economic system not only works phenomenally well, it is Utopian. Whether we like it or not, civilization is Utopian or Bust.

-Bernie Orbust

Owen Gray said...

I agree with you on this one, Bernie. We took a wrong turn when we bought into Friedman's vision of things. Lord Keynes knew what he was talking about.